NEW YORK (Reuters) - Qualcomm Inc (QCOM.O) posted a quarterly profit that rose 24 percent on Wednesday, handily beating Wall Street estimates on strong demand for high-end mobile phones using its chips and technology licenses.
Its shares rose as much as 3.5 percent in after hours trade after the company also raised its full-year earnings and revenue outlook on rising average phone prices.
Qualcomm net profit rose to $798 million, or 47 cents share for its fiscal third quarter ended in June, from $643 million, or 37 cents a share in the year-ago quarter.
Excluding its investment arm, Qualcomm said it earned 55 cents per share compared with average analyst expectations for 51 cents per share, according to Reuters Estimates.
Revenue rose to $2.33 billion from $1.95 billion a year ago and compared with analyst revenue estimates of $2.26 billion.
Cowen & Co analyst Matthew Hoffman said Qualcomm’s technology royalty business appeared to have been boosted by higher-than-expected average selling prices for phones, boosting its third-quarter and its fourth-quarter outlook.
“Clearly, they had very strong June quarter results. It was a solid top line beat, a good portion of which fell to the bottom line,” said Hoffman, also noting that the outlook had beaten consensus estimates. He rates the stock “outperform.”
Qualcomm raised its estimate for average selling prices for mobile phones to $216 for its fiscal year 2007, ending in September, up from its previous estimate of $208, likely indicating strong demand for high-end phones, Hoffman said.
Chief Financial Officer Bill Keitel said the better-than-expected results were due to increasing demand for third-generation (3G) phones with high-speed Web links.
“The entire 3G market which we earn royalties off grew to be quite a bit stronger than we expected,” and Qualcomm chip sales were at the high end of expectations, Keitel said.
Excluding its investment arm, Qualcomm forecast full-year 2007 earnings per share of $1.95 to $1.97, up from its previous forecast of $1.84 to $1.88. This compared with average analyst estimates for $1.91 per share, according to Reuters Estimates.
It raised its revenue outlook for the year to a range of $8.72 billion to $8.82 billion from its earlier expectation for revenue of $8.4 billion to $8.7 billion and above analyst expectations for revenue of $8.71 billion.
Qualcomm — the main chip supplier for phones based on CDMA, the mostly widely used mobile phone technology in the United States — faces several legal cases including a government ban on the U.S. sale of some phones with its chips.
Qualcomm shares were up 1.9 percent at $43.28 in late trade after closing at $42.45 in regular Nasdaq trade.
Piper Jaffray analyst Michael Walkley said uncertainty around legal battles surrounding Qualcomm was stunting investors’ reactions to its results.
“If you didn’t have a legal issue out there I would have thought the stock would have been up more. Legal issues are the main focus now,” Walkley said.
Qualcomm has been battling chip maker Broadcom Corp BRCM.O in patent infringement cases, one of which led the International Trade Commission (ITC) on June 7 to ban the U.S. import and sale of new advanced phones with Qualcomm chips. The ban exempted phones already being imported on June 7.
Last week, No. 2 U.S. mobile service Verizon Wireless, which depends largely on phones with Qualcomm chips, said it agreed to pay Broadcom $6 per phone or a total of $200 million for a license pact to avoid the ITC ban. Verizon wireless is owned by Verizon Communications (VZ.N) and Vodafone Group Plc
Qualcomm told analysts on a conference call that it had preliminary discussions with Verizon Wireless about the potential for it to help out with the payments to Broadcom. Qualcomm did not give an estimate for how much it could pay.
But based on the life of the Broadcom patents, the number of handsets Verizon Wireless tends to sell and the $200 million payment cap Keitel noted that the per handset price Verizon agreed to appears “closer to a dollar than to six.”
Keitel said it was not yet clear if the ban was hurting Qualcomm’s chances of winning new orders for its chips.
San Diego-based Qualcomm has also been in a bitter dispute with leading mobile phone maker Nokia NOK1V.HE after they failed to renew an expired technology license pact.
Executives for Qualcomm, which has asked arbitrators to handle the Nokia case, said they expect an arbitration panel for the case to be selected soon. The panel would then set the timeline for the case.